Congress Considers Bill On Non-U.S. Auditors

While the U.S. Securities & Exchange Commission (SEC) has finalized some Public Company Accounting Oversight Board (PCAOB) changes, Democrats in Congress are considering imposing other reforms.

Draft bills offered at the House Subcommittee on Investor Protection, Entrepreneurship, and Capital Markets on June 19, 2019, would make it easier for the PCAOB to inspect non-U.S. audit firms, set up a whistleblower program at the PCAOB, and make PCAOB hearings and all related notices, orders, and motions open and available to the public unless otherwise ordered by the PCAOB.

Andrew Vollmer, professor at the University of Virginia School of Law and a onetime deputy general counsel at the SEC, told the subcommittee, “The existence of U.S. reporting companies with auditors not inspected by the PCAOB is not acceptable.” But he added that the draft legislation—which would prohibit a U.S. public company from trading on an exchange or an alternative trading system if it retains a non-U.S. public accounting firm that the PCAOB is unable to inspect for a certain number of years—might encourage some non-U.S. companies to leave U.S. capital markets.

To avoid that and other potential pitfalls, Vollmer suggested an alternative approach where the SEC might either deregister an issuer’s securities when its auditor can’t be inspected by the PCAOB or require an issuer to post a bond or maintain an insurance policy equal to a large amount of money, such as half of the company’s market capitalization at the end of the preceding fiscal year.

Stephen Barlas has covered Washington, D.C., for trade and professional magazines since 1981 and since 1984 for Strategic Finance and its predecessor Management Accounting. You can reach him at sbarlas@verizon.net.